The husband of a New York socialiteAnnie Churchill, the ex-wife of Winston Churchill‘s grandson, has been accused of funneling his investors’ money into groceries, loft renovations and dog care. He had promised to use the money to build On1Ave.com, which would offer users “a virtual stroll down a luxurious shopping street” and “even allow shoppers to try on clothes.” Albert vehemently denies the charge and has filed his own countersuit, alleging libel.

Instead, it has been claimed that Andrew Albert spent the cash on a lavish lifestyle which saw thousands of dollars paid out for groceries, pampering his dog and moving to a plush loft apartment in Manhattan‘s Tribeca district.

On1ave.com, the website Mr. Albert and Melissa Skoog Dunagan, were allegedly building and which The New York Observer reported on in 2008, appears to be long-stale. A simple HTML page says “Welcome to a new & exciting way to shop, socialize and live. On1Ave, A Brand New World. Opening Summer 2009.”

Albert must have been pretty convincing because he got a hefty investment and persuaded former vice-president of PR at Prada, Melissa Skoog Dunagan, to partner with him. When Skoog became suspicious, he fired her. She has since launched OnMyPlate.com, and isn’t implicated in Albert‘s alleged crimes.

According to BetaBeat, it appears not much beyond the purchasing of the website’s domain name ever actually occurred.

The 49-year-old, married to Annie Churchill, is also said to have blown $20,000 on clothing, more than $9,000 on looking after his hair, and nearly $6,000 at health clubs.

Andrew Albert, was hauled into Manhattan Supreme Court in a pin-stripped suit and handcuffs. He pleaded not guilty to charges: scheme to defraud in the First Degree, grand larceny in the Second Degree, and Third Degree criminal tax fraud. He faces up to 15 years in prison for the 2-year swindle.

On1ave.com, was billed as the fashion equivalent of Facebook or Amazon of online shopping, but prosecutors said it was nothing more than an ATM for Albert and his socialite wife, Annie Churchill.

Visitors to the site would use an online avatar to ‘walk’ down a virtual street where they could ‘shop’ in the stores, which would be linked to actual firms like Prada, H&M and Ralph Lauren.

The avatar would be programmed with the shopper’s measurements, so users could ‘try on’ the garments before buying them. But the court heard that the venture was, in fact, a ‘sham‘

Manhattan District AttorneyCyrus Vance said: ‘Andrew Albert falsely told investors that his shopping website would feature a virtual street akin to famous retail boulevards like Madison Avenue or Rodeo Drive.

‘In reality, the company he created served as nothing more than a bank account that the defendant used to pay for his personal expenses and lavish lifestyle.
‘The defendant’s elaborate deception defrauded investors of more than half a million dollars.’

José Fanjul, an assistant district attorney, added in court: ‘The defendant has shown he is untrustworthy and a self-interested character and is willing to put his own desires ahead of others.’

According to documents filed in court, Albert formed a company called Virtual Etail Group LLC (VEG) in June 2008. That winter he started looking for investors.

He told prospective partners they would not only be funding the development of the site, but would also become VEG employees and equity members.

When specifically asked how he would support himself during the development period, Albert assured investors that he had savings from other projects, as well as stocks and bonds.

Albert had just $169 of his own money in the bank when the scam began, prosecutors said.

Prosecutors said the thieving began after Churchill stopped using her trust fund to pay their personal bills, and after he hired “Vogue” Editor Anna Wintour‘s former assistant.

Prosecutors said that, by June 2008, he had convinced his first investor to put $250,000 toward the online venture.

Later that year another investor put up $100,000, while in autumn of 2008 a third person stumped up $240,000.

The investors claiming to have been defrauded are, including Churchill‘s childhood friend, Michael Bedrick; three family members, William, Christopher and Maggie Heath; and a group called the Robert Johnston Family Trust.

William Heath owns a company called Lilybug that provides rides to people in the Hamptons so they do not drive while drunk.

Michael Bedrick, who was described as a close friend of Churchill (though she described their relationship by saying, “He had a crush on me”).

Albert has filed a countersuit against Mr. Bedrick, saying that the company has not been able to obtain $3 million in financing because of defamatory statements by Bedrick, including, he was “slacking off” and “Andrew Albert is lining his own pockets.”

They were each handed an equity share of the firm. The cash was placed into a company bank account, of which Albert was the sole signatory.

Prosecutors say Albert then started to transfer tens of thousands of dollars to an account in the name of Equation Entertainment LLC, a nearly defunct media consulting business he had formed in 2004.

They allege he used the account, for several years, to pay for rent, clothing, health and beauty expenditures, groceries, restaurants, and other personal expenses.

He also used some of the money to move from a small apartment in Greenwich Village to a large $2,000 a month loft in Tribeca.

Furthermore, it is claimed he used $51,000 to renovate the property, and $12,000 on moving and storage.

And, at the time he was pushing the project, Albert was said to be heavily relying on his wife, who is not implicated in the investigation and has publicly backed her husband, for money.

‘He’s innocent, and he’ll be vindicated – definitely, without a doubt,’ Churchill told the New York Times during a telephone interview.

Annie Churchill, who was not charged, was featured in a New York Observer article several years ago plugging the proposed website.

Albert has been released without bail and his lawyer George A Farkas said his client denied defrauding anyone.

Mr Farkas added: ‘This is absolutely nothing but investors in a high-risk venture not having the patience to wait. There is still time for this venture to get off the ground — maybe, maybe not.’

“It’s New York bulls—t,” Albert‘s lawyer, George Farkas, said, adding the case should remain in civil court.

Great tips for angels and VCs. Investors, does your portfolio include a criminal?

Watch for these warning signs:

When you repeatedly ask for a financial accounting and progress report, does your founder ignore your inquiries by simply reassuring you that the project “is moving forward”?

Is your founder not filing his tax returns?

Does your founder spend more than $9,000 on “hair and makeup expenses”?